It’s easy to get carried away with spending—so much so that you end up maxing out your credit card. But understanding the implications of hitting your credit limit and knowing the steps to successfully navigate this financial quicksand can help you get out cleanly.
For this super complete what-happens-when-you-max-out-a-credit-card guide, we brought out the big guns: Not one but three financial experts gave us their input and best tricks on how to get rid of a maxed-out credit card.
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What does it mean to max out a credit card?
Maxing out a credit card happens when your credit card balance reaches its credit limit, so your entire line of credit is used up.
“Essentially, it's like having a full tank of gas with no room for more; you can no longer charge purchases or withdraw cash advances until some of the balance is paid off and credit becomes available again,” says Mark Pierce, Founder & CEO of Wyoming Trust & LLC Attorney.
For example, if your card has a limit of $2,000 and your balance hits $2,000, you’ve maxed out your credit card. You cannot make another purchase because you’ve hit the limit.
This can occur gradually over time from consistent overspending or abruptly due to a significant purchase or emergency expense.
How do you max out a credit card?
Let’s review some factors that can contribute to maxing out a credit card:
- High-interest rates: They can accumulate quickly if you’re only making minimum payments, causing your balance to rise over time.
- Emergency expenses: Unexpected medical bills, car repairs, or other urgent costs can lead to a sudden spike in your credit card balance.
- Poor spending habits: Frequent use of credit cards for non-essential purchases can push your balance to the limit. Without a proper budget, it's easy to lose track of your spending, leading to higher credit card balances.
Reality check: What happens if you max out a credit card?
At this point, you're probably wondering what happens if you use 100% of your credit limit. Well, maxing out a credit card can have several immediate and long-term consequences.
Credit score impact
“It could significantly damage your credit score as the credit utilization ratio—how much credit you're using compared to how much you have available—is a major factor in credit scoring models,” Pierce says. “High utilization sends a signal that you might be overextending financially, which increases the risk for lenders.”
Basically, you’ll be a walking red flag for banks and other institutions.
Spending freeze
The immediate consequence of a maxed-out credit card is inconvenience. “A maxed-out card will decline for any further transactions, and assuming you need to make an essential purchase, you cannot, and it will be inconvenient,” says Fred Winchar, Co-Founder, CEO, and President of MaxCash.
For anyone thinking, “So, can I still use my credit card even if it maxed out?” the answer is no. You’ll have no available credit for emergencies or necessary purchases, which can lead to financial stress and reliance on high-interest payday loans or other costly borrowing options.
Over-limit fees and interest charges
Carrying a high balance accrues more interest, leading to increased debt over time. “The longer you have a maxed-out balance, the more interest you will be accumulating,” Winchar says. “Having accumulated interest translates to thousands in interest and will likely trap you in a never-ending cycle of payments.”
Also, “depending on the company, some will charge an overlimit fee if you exceed the allowed credit limit,” Winchar says. This will add to your overall debt.
And then there’s the psychological stress: The burden of maxed-out credit cards can cause anxiety and stress, negatively impacting your overall mental health.
How do I clear my maxed out credit card?
Let's get to the good part! To get you back on track, take immediate action to mitigate the consequences and start working towards financial recovery. High balances can lead to a cycle of debt if you're only making minimum payments, as interest charges continue to accumulate.
Here are some practical steps to help you:
- Stop using the card: The first step is to stop using the maxed-out card for any purchases. Removing it from your wallet or storing it in a secure place can help prevent further spending.
- Quantify the damage: How much total debt do you owe when you include any interest charges or over-limit fees?
- Figure out your “why.” “Next, understand what led you to max out the credit card to avoid falling back into the same trap,” Winchar says. When you understand the “why,” you can control your spending once you clear the card.
- Consider a balance transfer: If you have other credit cards with lower balances and interest rates, consider transferring your high-interest debt to a card with a lower rate. “Transferring the balance to a card with a lower interest rate or to a personal loan with lower APR could be helpful,” Pierce says, “but be cautious of balance transfer fees and new credit inquiries.”
- Prioritize debt repayment: List all your income sources and expenses, and allocate funds towards paying down your credit card debt. “This might include cutting unnecessary expenses or finding ways to increase your income,” Pierce says. Focus on paying down your highest-interest debt first, while still making minimum payments on other debts. This strategy, known as the avalanche method, can save you money on interest over time. (More details on this strategy below).
- Don’t let this happen again: Developing a budget is crucial for managing your finances and preventing future overspending. Also, regularly check your credit reports and develop healthier habits. Consider using cash or a debit card for everyday purchases to help control spending.
And if this isn’t your first maxed-out credit card rodeo, Winchar has an extra bit of advice. “If you’re dealing with several maxed-out cards, sign up for a debt consolidation loan,” he says.
The debt snowball or avalanche methods
These are two popular strategies for paying off debt. Both approaches aim to help individuals systematically reduce their debt, but they differ in how they are prioritized.
The debt snowball method focuses on paying off the smallest debts first, regardless of interest rates. This approach builds momentum and motivation as you see each individual debt eliminated quickly.
On the other side, the debt avalanche method prioritizes paying off the ones with the highest interest rates first. This approach minimizes the total interest paid over time—meaning more money is left in your wallet.
Some people even combine the two approaches, starting with the snowball method for initial motivation and then switching to the avalanche method to save on interest. The key is to choose a strategy that you can stick with consistently until all your debts are paid off.
This might also interest you: Which Credit Card Should I Pay Off First? The Best Way to Manage Multiple Credit Cards